INSURANCE ADVICE

UNRAVELLING THE NEW INSURANCE ACT

The iKBBI Installer magazine asks iKBBI Non-Executive Director Vince Linnane to unravel some of the intricacies of the new Insurance Act and asks how it will effect iKBBI members.

Do you think the Insurance Act was needed? Yes. This Act is intended to reform and modernise business insurance and aims to make recovery from insurers simpler and fairer in the event of a claim and takes account of case law. However, these benefits are dependent on the insured making a ‘fair presentation of risk’. This replaces the general obligation to disclose all material facts which will be applicable to disclosure before the contract is concluded, for new contracts and renewals, as well as midterm variations. This includes putting a prudent insurer “on notice” that it needs to make further enquiries whilst material information must not be deliberately withheld. This includes the practice of convoluted presentations and “data dumping” where disclosure must be “in a manner which would be reasonably clear and accessible to a prudent underwriter.”

It is accepted that this would depend on the knowledge of the insured. An insured must now carry out a reasonable search for information, and what is reasonable will depend on the size, nature and complexity of the business. The insured will be deemed to know what “should reasonably have been revealed by a reasonable search” and so information held by management or by any other person with relevant information (even those outside the company, such as the company’s agents provided this is not confidential).

However, this is not a one sided affair. The Act also creates a positive duty of enquiry for the insurer too. An insurer “ought reasonably to know” something if it is known to an employee/agent who ought reasonably to have passed it on, or relevant information which is readily available and held by the insurer and they would also be presumed to know things which are common knowledge or which they would be expected to know in the ordinary course of business.

Worth highlighting, provided the above is adhered to, is ‘the pay back’: It will be possible to ‘avoid’ the policy only where the insured’s breach of the duty of fair presentation is deliberate or reckless and so the claim would not be paid and premium retained. In other cases the insurer a scheme of proportionate remedies will apply based on what it would have done had the presentation been fair. For example, if the insurer:

1. Would have accepted the risk but charged a higher premium, it may

reduce any claim proportionately; 2. Would have entered into the contract on different terms (other than the premium), it may treat the contract as if it contained those terms; 3. Would not have entered into the contract at all, it may avoid the contract and refuse all claims but must return the premium.

In your experience are insurers fair when claims are made? Collectively, iKBBI members will probably have a more accurate picture on how fair insurers are. The key word here is ‘fair’ provided everything material, that is reasonable, has been disclosed there should be no reason to turn down a claim provided it was covered under the terms of the policy.

What do you think KBB companies will do differently, if at all, when buying insurance? Generally it depends on the size of the firm and the insurances they have in place. For the larger firms there seems to be an understanding that this can be a complex area and so basing the onus on a fair presentation of risk both on the firm and underwriter may lead to a more collaborative approach. For many firms they won’t have made a claim and wouldn’t necessarily been aware that reform was needed. If anything it may result in more interaction between firms and their intermediaries to ensure they’re getting value for money.

What do you think of the new obligations for insurers to pay claims not related to failures by the policyholder to do something (e.g. install a working burglar alarm when a claim for flood damage is made)? This is good news as previously whilst claims could have been accepted as a ‘gesture of goodwill,’ there is now a foundation stone to rely on where there should be less uncertainty. Previously the slightest breach of a warranty could discharge cover but now this depends on the relationship between the claim and any breach.

Where there is this non-compliance, the insurer can’t rely on this as a defence providing the insured can demonstrate that such non-compliance “could not have increased the risk of loss which actually occurred in the circumstances in which it happened.”

As you mention an example could be for flood insurance, no doubt under a broader policy, where there was a requirement to install a burglar alarm. If this was not installed the insurers will be unlikely be able to refuse a claim on that ground for flood loss. But I’d express some caution as this could be a potential grey area, if only to raise a dispute, for example it’s argued that the flood could have triggered the alarm which could have led to the emergency services turning up sooner to mitigate any loss.

Any other comments? The full impact of the Act still needs to be experienced and we’ll be watching carefully to make sure the KBB industry is well represented.